EU warned sanctions could plunge Belarus into crisis

By Andrew Beatty

Date: 06/10/05

EU sanctions against Belarus would provoke a massive economic crisis in the country, according to a report released last week.

Produced by a Bela-russian economic think-tank that wishes to remain anonymous because of the sensitivity of the issue, the report predicts an EU ban on commodity trading with Belarus would lead to a soaring budget deficit, substantial unemploy-ment, a likely devaluation of the Belarussian ruble and galloping inflation.

The document chal-lenges the commonly held view that the Belarussian economy is beholden only to Russia, predicting a possible 8-10% drop in gross domestic product if substantial economic san-ctions where put in place.

In November last year the EU put in place diplomatic sanctions against senior figures in the government of Alexander Lukashenko following flawed parlia-mentary elections.

Presidential elections due to take place in late 2005 or in 2006 are widely expected to be rigged and the EU is currently looking at what its response could be.

While further sanctions look likely to be limited to diplomatic measures a 'question paper' discussed by EU diplomats before the summer break asked if the Union should now consider economic sanctions.

The report shows that such a policy could have a significant impact on the situation inside Belarus.

In the first half of 2005 56.1% of all Belarussian exports went to the EU.

Under an embargo the oil industry would be hardest hit, losing an estimated €1.8-2.0 billion and causing a range of knock-on monetary and budgetary effects.

According to figures from the Ministry of Statistics and Analysis the EU takes 80% of Belarussian oil exports. The oil sector has strong links to senior members of the Luka-shenko administration.

Initially the loss of export earnings could reduce Belarussian tax revenues by 12-13%, says the report. This would "considerably reduce the budgetary capa-city of financing social pro-grammes and supporting various enterprises".

According to the think-tank the monetary impact could be similarly dra-matic with a currency deficit prompting the national bank to sell its currency reserves or to initially devalue the ruble by 10-15% in real value with subsequent devalu-ations likely.

The report also predicts the sanctions would prompt inflation of 30-40%. Wide-ranging sanctions would have a negative impact on ordinary Belarussians, in-creasing unemployment and limiting the govern-ment's ability to pay pensions and social services, it says.

The EU has traditionally opposed sanctions on countries such as Cuba, Libya or Iran, for fear of disproportionately affect-ing the poor and isolating the regime.

Article quotes a report produced by a Belarusian economic think-tank which predicts that an EU ban on commodity trading with Belarus would lead to a soaring budget deficit, substantial unemployment, a likely devaluation of the Belarusian rouble and galloping inflation. The authors of the report wished to remain anonymous because of the sensitivity of the issue.

European Commission: DG External Relations: Countries: Belarus http://www.eeas.europa.eu/belarus/index_en.htm

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